PayPal Suspends Personal Payments in India

PayPal says it has suspended personal payments to and from India, as well as transfers to local banks in India, although it’s not clear from the company’s short blog post what the problem is or what’s being done to fix it. All it says is that the company is working with its ” business partners and other stakeholders to address questions they have about the service.” PayPal says that commercial payments can still be made to India but merchants in that country can’t withdraw funds in rupees to local Indian banks.

An unnamed analyst quoted by IDG News Service says that the changes may be related to new government rules in India that are intended to prevent or discourage money laundering. These rules, introduced last year, require financial intermediaries to verify the identity of clients carrying out international money transfers.

India has been taking steps to try and improve security as part of its anti-terrorism efforts, including banning the import of cell phones that don’t have an identity code and thus can’t be tracked. It’s possible that the Indian government is concerned about PayPal money transfers being used to fund terrorism, and is requiring the company to either verify who is making and receiving the payment or block the transfer.

According to one online forum discussing the topic, PayPal has been reversing payments since Feb. 1, sending users an email that states:

Dear SENDER,

Your payment of $XX.XX has been returned to you. If you sent the payment with a bank account, the funds will be returned to your PayPal balance. If you paid with a credit card, the amount will be credited back to your card. We returned the payment to you because we have stopped allowing personal payments to be sent to or from India… If this payment was a personal payment, such as a gift to a friend or family member, then we request that you find another payment method until we restore personal payments to and from India. We are trying to resolve this issue as quickly as possible and we’re sorry for any inconvenience. Thank you, PayPal.

Another user said that he or she received an email from PayPal saying the company had suspended “specifically those funds transfers that do not have an underlying exchange of goods or services.” The email recommended that the seller contact the buyer and ask them to pay again, and specify that goods were the reason for payment. Other disgruntled and confused PayPal users are discussing the issue in forums here and here.